Kelley Industries makes high-performance swimwear for triathletes. Kelley’s manufacturing costs for the production of 100,000 swimsuits were as follows:

Requirements:

1. Calculate the product cost per unit using (1) absorption costing and (2) variable costing.
2. If inventory increases by 4,000 units over the preceding period, by how much would operating income differ between the two costing methods? Explain.

Transcribed Image Text:

Direct Materials Total Manufacturing Cost for 100,000 Units $1,800,000 Absorption Costing Per-Unit Product Cost Variable Costing Per-Unit Product Cost Direct Labor 375,000 Variable MOH 250,000 Fixed MOH 300,000 Total Cost $2,725,000